Active hurricane season creates uncertainty in US O&G industry

The views and opinions expressed in this blog are those of the author’s and do not necessarily reflect the official policy or position of Hydrocarbon Processing.

With Hurricane Harvey still fresh in the minds of those on the Gulf Coast, and Hurricane Irma making its way through Florida, the last few weeks of the 2017 hurricane season has shaken up the upstream and downstream sides of the oil and gas industry, causing more uncertainty in an already volatile industry.

The US Energy Information Administration (EIA) reported that Harvey caused substantial disruptions to crude oil and petroleum product supply chains, increasing petroleum product prices. During the last week of August, the EIA reports, gross inputs to refineries on the Gulf Coast fell by 3.2 MMbpd, or 34%, from the previous week. This drop was the largest since Hurricanes Gustav and Ike in 2008.

Aside from refineries, crude oil and petroleum product pipelines were also affected by Harvey, the EIA stated, including the Colonial Pipeline system, which connects 29 refineries and 267 distribution terminals. The company briefly restricted operations and shipped products intermittently before resuming operations at a reduced flow Sept. 6.

Harvey hasn’t seemed to be able to dampen expansion plans for oil and petrochemical plants on the Gulf Coast, with near record spending expected in 2018. Despite the rising cost of labor thanks to Harvey, Industrial Information Resources (IIR) expects industrial investment on the Gulf Coast to reach $51.9 B in 2018, near the 2015 peak.

New projects planned for the Gulf Coast region haven’t seemed to slow as a result of Harvey either. Plans from BASF, DowDuPont and ExxonMobil are still underway, but some companies may be considering putting some warehouses and stock elsewhere, IHS Markit Senior Vice President David Witte told Reuters.

The total impact of Hurricane Irma has yet to be determined as it’s still making its way through Florida, but Reuters reported Monday morning that oil prices were lower as there are concerns Irma could dent oil demand in the US. Goldman Sachs analysts report that the two hurricanes are expected to inflict a “bearish shock” on oil balances this month of about 600,000 bpd.

Only time will tell how dramatically this hurricane season will affect the industry, both upstream and downstream.